Energy Spend Management

A recent study by the McKinsey Global Institute found that 10% of all energy worldwide is consumed by commercial real estate sites. Commercial buildings, as defined in the study, include a broad array of non-manufacturing structures such as hotels, hospitals, restaurants, warehouses, retail stores and office buildings. Stated another way—one out of every ten BTUs of energy produced is used to heat, cool, power or light buildings. This statistic may surprise you, but commercial energy usage is relatively small when compared to residential household consumption. Residences utilise 2.5 times more energy annually than businesses. Commercial energy usage is small relative to the transportation sector. The ground and air transportation sectors consume almost 2 times as much. Nonetheless, commercial buildings represent a significant energy user and therefore a worthwhile candidate for exploring efficiency initiatives to support the environment.

Retrofitting with Backwards Incentives

Buildings have an average lifespan of approximately 50 years, which means that many of today’s commercial structures were constructed before the first oil crises of the 1970s. Of course, our need for energy efficiency and our sensitivity towards the environment have both changed dramatically over the past few decades. Buildings constructed today are designed for higher energy standards utilising more modern technologies and efficient building materials than those from earlier decades. What can be done to improve the energy efficiency of older buildings? One approach would be to tear these older structures and replace them with newer, more energy efficient buildings. However, I doubt there would be a compelling business case for such an effort. Another alternative is to retrofit buildings with newer technology and more energy efficient HVAC systems and lighting systems. Such enhancements would certainly reduce energy consumption, but they often require large capital outlays. The building owners that finance these enhancements rarely can achieve an acceptable payback period on such investments.

The situation becomes even more complicated when one considers the backwards incentive structures that exist in commercial real estate. Architecture and engineering fees for new construction are often calculated based upon a percentage of the overall capital costs for the building. Such an approach leads designers to over-engineer building energy systems such as HVAC. Furthermore, the property owners who fund new construction or building enhancements are often not the actual tenants. The energy bills are typically paid by the leaseholders who are each utilising different parts of the building. As a result, the property owner lacks a strong incentive to invest in energy-efficiency enhancements.

Leaky Pipes, Toaster Ovens and Photocopiers

Energy efficiency projects that require large capital investments are fraught with conflicting interests and poor ROI, but there are opportunities to reduce commercial energy usage by simply cutting back on unnecessary consumption. To achieve these cutbacks facilities managers need visibility to energy usage patterns in the various locations. Unfortunately, gaining visibility to energy use is much easier said than done. Most facilities managers simply do not have good data on how individual sites are consuming electricity, gas and water. As a result, business owners are challenged to identify:

Wasted Resources—Facilities management staff lack visibility to data that would identify scenarios such as underground water leaks that are not easily detectable by visual inspection. As a result, thousands of gallons of water per year could be needlessly seeping through leaky pipes.

Non-Compliance—Policy makers at headquarters lack the means for tracking compliance with corporate energy policies. Is the maintenance staff turning off overhead lighting during their nightly cleaning routines? Are employees utilising refrigerators, toasters or energy-intensive and possibly unauthorised devices in their individual workspaces?

Phantom Energy—In a typical home or office building up to 5% of energy consumed is powering electronics that are not being used (i.e. in standby mode or powered off). A mobile phone on standby is a good example. In office space, there are numerous electronics which could be powered down during off-hours to reduce phantom energy usage. For example, PCs could be powered down over the weekend rather than put into standby mode. Copiers and network printers should be shut down the idle periods between business hours.

Will Utility Providers tell me How to Spend Less Money with Them?

The best source of energy consumption data would actually be utility providers who meter usage for billing purposes. However, most businesses only receive the summary data included with their monthly invoice from their utility provider. High level summary data is not detailed or meaningful enough to identify areas of waste and inefficiency. Most companies have the energy bills sent to their accounts payable department. The A/P clerk is not able to determine whether the bill is higher or lower than it should be. They may compare it to the previous month’s bill or to last year’s bill for the same month. Most A/P clerks just pay the bill in full and move on.

Customers should request copies of detailed meter readings that track how water, gas and electricity resources are consumed by day week and time of day for each location. However, many customers simply do not ask for the data. Why not? Because many customers do not have energy spend analysts who could interpret the data and recommend corrective action. A complex set of rating and tariffs is used to calculate energy prices. To identify waste or inefficiency, businesses need experts who can interpret the industry specific set of terminology and codes is used to represent metering data in utility billing systems.

B2B Integration enables Energy Savings

Getting the data is not either easy. The data sets are extensive often with millions of records for multi-site customers. Data is locked in legacy utility billing systems that do not offer easily extraction and translation capabilities. Once the data is extracted the next challenge is getting it to the customer. Detailed meter readings for a large, multi-site customer might result in a massive, multi-gigabyte file. Most utility providers and corporate customers lack the infrastructure to send and receive these files. An alternative to file transfer is to ship a printout of meter readings for corporate customers to analyse. A third technique is to load the data onto CDs which can be shipped by mail to the customer. Each of these options is time consuming and complex.

Once the data is received by the customer, energy analysts need to be able to transform the information into a meaningful format. Unfortunately, no standards exist for the sharing of utilities data. Extracts from utility billing systems are often structured into proprietary file formats. Another complication is the extensive use of specialised codes by utility providers to describe the various rates and tariffs. These codes should be normalised into descriptive phrases that offer insights to readers.

B2B Integration is one of the key technologies that can help to enable more comprehensive energy spend analysis for commercial office buildings. B2B service providers and software vendors offer Managed File Transfer products that can enable utility providers to send and corporate customers to receive the massive data files. High performance translation engines can be leveraged to convert the data from legacy, utility billing formats into a standardised file that can be injected into an analytics engine. These two functions are critical to unlocking the potential savings that could be achieved in commercial energy use across the world.

Introducing Energy Spend Management

Several vendors have developed “energy spend management” software packages that can perform extensive analysis of utility data to identify opportunities for lower consumption as well as cost reduction. For many businesses, reducing their environmental impact is not the primary driver for energy spend management programs. Instead, these organisations are seeking to identify instances of fraud, overbilling and corporate policy violations that are resulting in excessive charges. The fastest cost savings can result from billing errors. Approximately, 10-15% of all utility bills have some type of error. Most of the errors would not be easily identified to the average accounts payable clerk, who is untrained in the unique pricing and regulatory dynamics of the utility sector. Spend management software can help to identify common billing problems such as:

Subsidising the Neighbors—For multi-tenant properties, landlords often receive one energy bill which they then re-bill to their individual leaseholders. It is not uncommon for the landlord’s allocations to be in error resulting in tenants paying more than their fare share of energy fees.

Lighting Vacant Properties—Site additions, closes and changes are the root cause of numerous billing errors. A tenant vacates a property then notifies a utility provider to suspend service. These “cancel orders” are notorious for going unfulfilled. As a result, the customer may continue to be invoiced for energy services in unoccupied properties.

Wacky Meters—Meters are not flawless. If not properly maintained and upgraded meters can provide inaccurate readings. While under-billing scenarios will result in the customer’s favor, over-billing scenarios can prove to be very expensive if they are not promptly identified and corrected.

Spend Management as a Service

The examples above illustrate the cost savings that can be obtained by energy spend management software. However, implementation of this technology is relatively limited to date. One of the key challenges to adoption of energy spend management is the lack of qualified resources which are needed to perform the analysis. An alternative to purchasing software is to outsource energy spend management to a specialised business process outsourcing firm. Using specialised BPO firms can unlock additional opportunities for savings:

Benchmarking—Most companies do not know whether their energy spending is high or low relative to their peer group. BPO firms can compare your usage to other businesses with a similar consumption profile. To arrive at a fair comparison, your usage should be compared to other buildings located in the same types of climate patterns and with comparable square footage.

Modeling—BPO firms can model the impacts of energy efficiency investments such as upgrading to a newer appliances, improved building insulation and conversion to gas from electric power. Weather is a key driver of energy usage. BPO firms can model the potential impacts of above average or below average seasonal temperatures on energy consumption.

Budget Planning—Firms will analyse trends in utility prices; planned rate increases and energy futures market trading to arrive at an estimate future cost per kilowatt. Using forecasted rates, the BPO firms can provide an overall budget recommendation with breakdown by site and division. Monthly variance analysis can be performed to identify energy spending relative to forecast as well as to explain the root causes for any unexpected deviations.

Turning off the lights

Significant energy cost savings can be achieved simply through policy changes. For example, by requiring all electronics to be powered off or unplugged at night can cut back on the phantom energy that is drawn by copiers, printers, PCs and networking equipment while they are in standby mode. The facilities management or building maintenance crew can easily be assigned the task of turning off all unnecessary lights and electronics during off-hours. However, monitoring compliance with these policies on an on-going basis can prove to be challenging. Unfortunately, metering data from utility providers will not offer insights into which specific devices (e.g. printers, PCs) were drawing power or which buildings had the lights on all night. However, regular benchmarking of energy consumption between your own facilities and external benchmarks will quickly identify the most offensive non-compliance scenarios.

Waste Management goes Green

Although the primary motivation of many energy spend management customers is to reduce costs, there is an obvious byproduct of reduced carbon output into the environment. I think that the drive towards corporate social responsibility and environmentally-friendly business processes will be a catalyst for the development of a number of innovative technologies and business services. For example, I heard recently that there are services firms who will analyse your company’s trash to identify opportunities to reduce the volume of waste being generated. The analysis can identify opportunities for businesses to improve their recycling programs for electronics equipment, paper, plastic bottles or aluminum cans. In other scenarios, waste such as styrafoam cups can be replaced with more environmentally friendly products that serve the same purpose. I have not been able to determine if these waste analysis firms are associated with the organised crime families that operate most of the waste management businesses in the US. But the waste analysis opportunity does prove that every type of business, legitimate or not, can profit from the green movement.